SEC: Waltham man led insider-trading ring among group of golfing friends

Friday

Jul 11, 2014 at 1:36 PMJul 11, 2014 at 2:20 PM

The Securities and Exchange Commission (SEC) on Friday charged a group of golfing friends – including a Waltham man – with allegedly making more than $554,000 in illegal profits from insider trading through Devens-based American Superconductor Corporation.

Eli Sherman Waltham News Tribune

The Securities and Exchange Commission (SEC) on Friday charged a group of golfing friends – including a Waltham man – with allegedly making more than $554,000 in illegal profits from insider trading through Devens-based American Superconductor Corporation.

The SEC charges that Eric McPhail, of Waltham, along with six others violated federal antifraud laws and the SEC’s antifraud rule, and seeks to have them be enjoined, return their allegedly ill-gotten gains with interest, and pay financial penalties of up to three times their gains, according to a press release. McPhail’s attorney, Thomas Kiley of Cosgrove, Eisenberg & Kiley, hadn’t seen the press release Friday, but said he plans to file a response to the complaint within 20 days.

“We plan to defend ourselves vigorously and that’s all I can say at this stage,” Kiley said, adding that he would respond further after crafting his response.

McPhail, 41, and Parigian, 56, were indicted on charges of conspiracy and securities fraud, according to the U.S. Attorney's Office, which worked with the SEC on the investigation. Parigian was also charged with making false statements to a federal agent in the course of the investigation.

In a complaint filed in Boston federal court, the SEC alleges McPhail repeatedly provided non-public information about American Superconductor – an international alternative energy company in Devens – to six others, most fellow competitive amateur golfers, according to the release.

“Those who engage in insider trading are rigging the system and victimizing the law-abiding citizens who choose to invest our public companies," U.S. Attorney Carmen M. Ortiz said. "We will aggressively police the markets to deter this kind of behavior.”

The SEC alleges McPhail’s source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconductor’s expected earnings, contracts and other major pending corporate developments, trusting that McPhail would keep the information confidential, according to the release.

Instead, McPhail misappropriated the inside information about the energy technology company and fed it to his friends, often via email, the SEC said. The insider-trading ring included a handful of golfing buddies, four of whom live in Massachusetts: Douglas A. Parigian of Lowell, John J. Gilmartin of Andover, Douglas Clapp of Walpole, and James A. “Andy” Drohen of Granville. The fifth, Drohen’s brother, John C. Drohen, is a resident of Cranston, R.I.

In addition to the group of golfers, McPhail tipped a sixth man, his longtime friend Jamie A. Meadows, of Springfield, Mass. Each of the six traded and profited on the inside information McPhail supplied to them, according to the release.

“Whether the tips are passed on the golf course, in a bar or elsewhere, the SEC will continue to track down those who seek an unfair advantage trading stocks,” said Paul G. Levenson, director of the SEC’s Boston Regional Office. “Working with our partners in law enforcement, we are sending a message to all investors that insider trading does not pay.”

According to the SEC’s complaint, in April 2011, McPhail tipped Parigian and Meadows a few days before American Superconductor announced that it expected fourth-quarter and fiscal year-end results to be weaker due to a deteriorating relationship with its primary customer, China-based Sinovel Wind Group Co., Ltd. Parigian and Meadows used the information to place bets, through option contracts, that the company’s stock price would decline. When American Superconductor made the announcement, its stock price fell 42 percent and as a result of this one tip alone, Parigian made profits and avoided losses of $278,289, while Meadows made profits of $191,521, according to the release.

McPhail tipped the various defendants on other occasions, funneling them inside information about American Superconductor’s quarterly earnings announcements in July and September 2009, and again in January 2010, the SEC said. He also alerted them in the fall of 2009 to a contract worth $100 million, and in November 2010 to a likely drop in American Superconductor’s share’s price, which occurred a few days later when the company announced a secondary stock offering.

The statute for the criminal charges provides a maximum sentence of 20 years in prison on the securities fraud charge to be followed by three years of supervised release and a $5 million fine, according to the U.S. Attorney's Office. The conspiracy and false statements charges carry a maximum sentence of five years in prison, three years of supervised release and a fine of $250,000 per count.

According to the release, Gilmartin, Clapp and the Drohens agreed to settle the SEC’s charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the relevant securities laws. The judgments also order:

· Gilmartin to return $23,713 in trading profits plus prejudgment interest of $4,034 and a civil penalty of $23,713, for a total of $51,460

· Clapp to return $11,848 in trading profits plus prejudgment interest of $1,767 and a civil penalty of $11,848, for a total of $25,463

· Andy Drohen to return $22,543 in trading profits plus prejudgment interest of $3,845 and a civil penalty of $22,543, for a total of $48,931

· John Drohen to return $8,972 in trading profits plus prejudgment interest of $1,511 and a civil penalty of $8,972, for a total of $19,455

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.